The Ukraine-Russia crisis creates unique risks in the commodity markets that are hard to price, but not impossible. The impact of this seemingly far-off stand-off can be significant for a number of markets.
First, there is the new landscape for energy markets. The risk of being dependent on Russia for a source of energy is too great. There will be a shifting of suppliers for the EU over the next few years. The flow of oil and nautral gas will change and will cause price dislocations. The competition for Middle East oil and gas will increase. Second, there is the potential for disruptions in grain markets. The Ukraine is not one of the largest grain exporters, but on margin a dislocation in their business will be felt in the US, Argentina, Canada, and Australia. The power of logistics will again cause price distortions if we have a tight supply year. Third, there is a risk in precious metals markets. With Russia being a major supplier of palladium, there will be a price impact from any bank sanctions.
Note that all of these dislocations will lead to higher prices while equity and bond markets will be negatively effected. There is a benefit from being long commodities when there is higher geopolitical risk.
First, there is the new landscape for energy markets. The risk of being dependent on Russia for a source of energy is too great. There will be a shifting of suppliers for the EU over the next few years. The flow of oil and nautral gas will change and will cause price dislocations. The competition for Middle East oil and gas will increase. Second, there is the potential for disruptions in grain markets. The Ukraine is not one of the largest grain exporters, but on margin a dislocation in their business will be felt in the US, Argentina, Canada, and Australia. The power of logistics will again cause price distortions if we have a tight supply year. Third, there is a risk in precious metals markets. With Russia being a major supplier of palladium, there will be a price impact from any bank sanctions.
Note that all of these dislocations will lead to higher prices while equity and bond markets will be negatively effected. There is a benefit from being long commodities when there is higher geopolitical risk.
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